Although stocks may pull back again after their strong rebound rally since the April 8 lows — especially if trade deals and tariff reductions don’t materialize — the lesson is clear: in our view, staying the course during downturns is typically the right approach.
Several factors are at play in the market’s recent recovery:
1. Optimism about trade and tariffs. The White House has signaled progress on deals with several countries, including India, South Korea, Japan, and the U.K. President Trump has also hinted at reductions in China’s tariffs, while Treasury Secretary Scott Bessent will have met with senior Chinese trade officials in Switzerland as well.
2. Resilient economic fundamentals. The U.S. economy added 177,000 new jobs in April, keeping unemployment low at 4.2%. Consumer spending grew 1.8% in inflation-adjusted terms in the first quarter, while business investment surged over 20% annually — bright spots that were overshadowed by concerns about the 0.3% dip in gross domestic product (GDP) caused by surging pre-tariff imports. A rebound in second-quarter GDP should prevent consecutive quarters of contraction.
3. Easing inflation delayed but still coming. While tariffs may slow further improvement, we and the markets expect inflation to resume its downward trend toward the Federal Reserve’s (Fed) 2% target by 2026. Falling oil prices and declining long-term Treasury yields since January are also helping.
4. Strong corporate profits. S&P 500 firms are on track for over 13% first-quarter earnings growth, roughly double expectations when earnings season began. Leading technology companies have reaffirmed or increased capital spending plans despite trade uncertainty, committing to a more than 30% increase in 2025 over 2024, underpinned by confidence in the potential payoffs of artificial intelligence.
Looking ahead, stocks may need a bit of a breather after making up so much ground quickly. Stagflation risks cannot be dismissed as growth slows and tariffs loom. While the U.S. economy and corporate America remain in excellent shape, we suggest investors maintain exposure to equities and fixed income in line with long-term targets.
Stocks tend to reward disciplined, long-term investors who can tolerate the typical fluctuations in value. Few investors in history exemplify this discipline better than Warren Buffett, who stepped down as CEO of Berkshire Hathaway (BRK/A) recently after 60 years in that seat (although he remains Chairman). We wish him well in his “retirement” at the age of 94.
Thank you for your continued trust in us, and please reach out with any questions or to set up a visit.
Sincerely,
Bryan Foronjy, CFP®
Principal Wealth Manager
Foronjy Financial
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